In a seller-paid closing, sellers can pay up to six percent of the loan amount on a USDA loan. What are the costs included?
Getting a mortgage is intimidating.
Aside from saving for the required down payment, there is the long loan acquisition process, the appraisal, the pressure to lock at the right time, and of course, there’s the additional cost of closing.
For conventional mortgage programs, it is typical for borrowers to pay around 2 to 5 percent of the home’s purchase price at closing. For a $250,000, that’s around $5,000 to $12,500. Given the borrower pays the minimum 20 percent down payment requirement, that would be $50,000 plus whatever you have resolved to pay.
Unfortunately, most people just don’t have that money. In fact, only 35 percent of Americans have a couple hundreds of dollars in their savings accounts. Per a recent survey, it was found that 68 percent of Americans don’t even own a home they call their own.
Certainly, taking the step towards homeownership can be hard for many. This is where low down payment mortgage programs come in handy.Get today’s rates!
One of these low down payment mortgages is the USDA mortgage program offered by the United States Department of Agriculture to eligible borrowers looking for properties in designated rural areas.
The USDA mortgage program offers zero down payment, with very low interest rates. Next to the VA home loan, it competes as one of the best mortgage programs available today.
But like any other mortgage program, the USDA still requires its borrowers to pay for closing costs. Typically, this can range from three to six percent of the purchase price of the home. It’s a good thing, however, that the program allows the borrowers to share the burden of the closing with the sellers.
Sellers can pay a determined percentage of the closing costs for the lender. But like any other seller contributions in a mortgage, there are limitations.
What fees are involved at closing?
In simple terms, closing costs are costs that are charged by the lender for originating the loan. This includes payment for the steps involved in processing the loan, from credit checks to appraisal, underwriting, and recording, among others.
Typically, you will see the following included in your closing costs:
- Processing fee
- Discount points
- Origination points
- Underwriting fee
- Credit reporting fee
- Escrow fee
- Title search
- Title insurance
- Recording fee
- Attorney fee
- Transfer tax
Specific closing costs involved may vary widely from lender to lender.
What are seller contributions?
Basically, seller contributions refer to the amount of closing cost shouldered by the sellers through a seller-buyer negotiation. This cost is also known as seller concessions.
But how much can sellers really contribute?
In every mortgage program, there is always a set cap as to how much the seller can pay and the USDA is no different.
According to the rule, sellers can only pay up to six percent of the overall loan amount. That means that for a $250,000 home, the seller can pay up to $15,000.
However, the buyer cannot ask for more money than the cap amount. That is, it cannot exceed the actual cost of closing. So if the closing cost is only $7,500, the seller can only pay as much as that same amount.
Before any such decision is taken, you should know that the seller cannot provide concession if there is no determined home value.
The appraised value must come back at the adjusted sale price because if not, the buyer may need to pay for closing out-of-pocket.Click to See the Latest Mortgage Rates»